According to data obtained by 9 to 5 Mac from sources close to Staples, Inc. (SPLS), Amazon.com, Inc. (AMZN) is preparing to launch a small electronic credit card reader, which will interface with its best-selling Kindle Fire tablets, Fire Phone, and other platforms (possibly Google Inc.’s (GOOG) Android and Apple, Inc.’s (AAPL) iOS).
I. Why Mobile POS Tech is a Big Deal in Retail
Mobile (point of sale) card reader offerings typically consist of an app that goes on your tablet and smartphone, and a small piece of hardware that plugs into your phone’s connectivity (microUSB) port. The app is typically free and the cost of the reader hardware retails is generally relatively low (with some today retailing for $5-10 USD per unit). The monetization primarily occurs via the transaction fee assessed on top of each transaction — typically around 2-3 percent of the transaction amount.
That fee may seem high, but it’s actually very competitive for small businesses — and even larger ones. In recent years a series of mergers and consolidations left a trio of corporations Visa Inc. (V), Mastercard Inc. (MA), and American Express Comp. (AMX) in charge of nearly 95 percent of credit card transactions.
Further, four card issuers — Citigroup Inc. (C), Bank of America Corp. (BAC), JPMorgan Chase & Comp. (JPM), and Capital One Financial Corp. (COF) — issue 70 percent of the cards used in the U.S. Together these players acted collusively to raise fees to egregious rates, putting the squeeze on merchants of low-value transactions.
[Image Source: Alamy]
This squeeze hit small businesses the hardest, but it also hurt larger businesses such as coffee and fast food chains, who had to pay slightly lower fees, but still more than they would have paid in a more competitive market.
A 2009 story from the Institute for Local Self-Reliance (ILSR) states:
For independent businesses, credit card fees can rival or even exceed their profits. Kathy Miller, fifth-generation owner of a general store in Elmore, Vermont, testified before the Senate Judiciary Committee that, on a $10 gasoline sale, she makes 49 cents in profit and pays 47 cents in credit card fees.
Sadly, rates of 4-6 percent were not uncommon given the lack of competition in the credit card business.
II. Mobile Readers Cometh, Led by Square and Intuit
But a half decade ago technology finally offered a solution to potentially break the grip Perhaps the first mobile payment proponent was Intuit Inc. (INTU), whose GoPayment launched in 2010.
The mobile credit card reader/budget point-of-sale (PoS) services business has exploded ever since San Francisco, Calif.-startup Square, Inc. (not to be confused with the Japanese videogame maker) launch for iOS and Android in 2010. Square has made big waves by not only offering easier card reading, the ability to develop more attractive sales kiosks (via the interface with a tablet or smartphone), and less fees than traditional card readers.
Square shook things up.
If its ability to woo small businesses was a warning sign to the established players of digital payments, traditional payments, and e-commerce, Square’s ability to score deals with the likes of Starbucks Corp. (SBUX) and Whole Foods Market, Inc. (WFM) was a real game-changer. Visa also turned heads when it became a major investor in Square in 2011, giving it a massive quarter billion dollar early valuation only a year after launch.
Rates for Square and Intuit were often only a little over half the rate large credit card firms charged on large transactions. Recognizing the rapid growth of Square and Intuit’s offerings, other players quickly jumped in. In Jan. 2011 North American Bancard launched PayAnywhere.
In Mar. 2012 eBay, Inc.’s (EBAY) PayPal launched “PayPal Here” a challenger to Square. Like Square’s solution, “Here” from PayPal is a small reader (in PayPal’s case a triangle, perhaps in a subtly cheeky gesture at Square).
Paypal piled on.
Staples — the second largest online retailer after Amazon — in March 2014 quietly launched its own branded “Mobile Register” solution, whose hardware is free after a rebate (versus $5-6 USD for a Square reader) and who offers one of the lowest transaction fees — 2.5 percent (versus 2.7 for PayPal Here and 2.75 for Square). Staples also sells third party readers from Square, PayPal, and PayAnywhere.
There’s over a dozen companies offering swipe-style card reade product today. Add in NFC payment offerings like Google Wallet — a competitive, but slightly different solution, and there’s close to 30 possibilities.
III. A Market Giant Prepares to Enter the Fray
A leaked inventory list from Staples indicates a mysterious “Amazon Card Reader” will soon be joinging that list. According to the documents and sources, the signage about the new reader will go up August 12. The reader will retail for $9.99 USD; just slightly more than a Square reader.
[Image Source: Staples via 9to5Mac]
A second leaked document shows that physical stores will carry the new device (#6), which will go on the shelf beside the PayPal Here (#7) and the Staples Mobile Register (#8).
[Image Source: Staples via 9to5Mac] It’s a little surprising to see Amazon sneaking such an important piece of hardware under the radar until a half month before its launch, but consider Staples’ quiet launch of its own branded solution (which did not appear to even have a press release dedicated to it), it’s not altogether unprecedented.
Big questions include what transaction fee Amazon will charge and what platforms it will support. It seems highly likely that it will be supported by Apple’s iOS and Google’s Android, but Amazon may look to differentiate support on Fire OS devices with special features. The Fire Phone launched with Amazon Wallet, Amazon’s answer to Google wallet.
If Amazon wants to have the best fees, it may look to offer a rate under Staples’ 2.5 percent — perhaps as low as 2 percent. Amazon also has been very aggressive in undercutting rivals in other markets like storage and cloud processing.
Some have speculated that Apple may enter the card reader market, with a solution of its own based on the TouchID fingerprint technology that was introduced last year with the iPhone 5S. Of course, that tech could simply be a NFC style reader retrofitted onto current payment systems a la Google Wallet. On the flip side Google may look to expand its current NFC-based payment scheme further with more traditional swipe-style card readers.
Either way, expect Amazon’s new reader to make a big splash if it indeed debuts next month.
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